The S&P 500 and Nasdaq ended higher on Tuesday for the second consecutive day, driven by investor optimism fueled by lower-than-expected inflation data. This came after Monday’s rally, which was sparked by the announcement of a U.S.-China trade truce.
However, the Dow Jones Industrial Average declined, with the most significant impact coming from UnitedHealth’s 17.8% drop. The health insurance giant suspended its annual forecast and saw its CEO step down, weighing down the index.
The S&P 500 saw its first year-to-date gain since late February, following data that revealed a moderate rebound in U.S. consumer prices in April. Headline inflation rose by 0.2% month-over-month, slightly below economist expectations of a 0.3% increase, after a 0.1% drop in March. The Consumer Price Index (CPI) rose 2.3% year-over-year, down from a 2.4% increase in March.
Carol Schleif, chief market strategist at BMO Private Wealth, described the trade news as a shift from a “frozen” situation to “80-degree spring day overnight.” She noted that the 90-day pause in tariffs would help retailers stock up for the back-to-school and holiday shopping seasons.
The U.S. and China agreed to a temporary suspension of tariffs, with U.S. tariffs on Chinese imports reducing from 145% to 30%, while Chinese tariffs on U.S. goods dropped from 125% to 10%. This development helped ease fears of a global economic slowdown, prompting brokerages to lower recession predictions.
The market reaction was also influenced by expectations that the Federal Reserve may delay interest rate cuts until September. Traders anticipate two 25-basis-point cuts by the end of the year.
R. Burns McKinney, a portfolio manager at NFJ Investment Group, noted that the Fed could focus more on labor market issues in its upcoming meetings. He added that if inflation remains under control and trade policy stabilizes, the Fed may resume its rate-cutting cycle, not due to economic weakness, but to address inflation pressures.
The Dow Jones dropped 269.67 points, or 0.64%, to 42,140.43. Meanwhile, the S&P 500 gained 42.36 points, or 0.72%, to 5,886.55, and the Nasdaq Composite surged 301.74 points, or 1.61%, to 19,010.09.
In sector performance, technology led the way with a 2.25% gain, while healthcare was the biggest laggard, down 2.97%.
The S&P 500 and Nasdaq have recovered most of their losses since April 2, when President Donald Trump announced significant tariffs. A 90-day pause in tariffs for countries other than China, strong earnings reports, and a U.S.-UK trade agreement last week have helped the indices regain lost ground.
Shares of Coinbase Global jumped nearly 24% following the announcement that the crypto exchange operator would join the S&P 500 on May 19.
Looking ahead, Walmart’s earnings report later this week will be closely watched, as will speeches from several Federal Reserve officials, including Chair Jerome Powell on Thursday.
On the NYSE, advancing stocks outnumbered decliners by a 1.86-to-1 ratio, with 189 new highs and 77 new lows. On the Nasdaq, 2,590 stocks advanced, while 1,904 declined, with advancing issues outpacing decliners by a 1.36-to-1 ratio. The S&P 500 saw 19 new 52-week highs and 6 new lows, while the Nasdaq Composite recorded 75 new highs and 74 new lows.
Overall, trading volume reached 17.81 billion shares, surpassing the 20-day moving average of 16.51 billion shares.
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